Foreign Employees and
Foreign Vendors
Federal Tax Withholding Forms
and Procedures
Vanessa Sifuentes
Accounting Group Manager
vsifuentes@southtexascollege.edu
872-4674
WHY DO YOU NEED TO KNOW THIS?
Foreign employees may be hired.
Foreign vendors such as
International guest speakers,
consultants, etc. may be
contracted for an STC event.
Foreign vendor companies may be used to
buy goods or services.
WHY IS THIS IMPORTANT?
Ensure the College is compliant with all
Federal Regulations regarding taxation and
reporting:
IRS Regulations on Taxation
U.S. Department of Homeland Security
FOREIGN PERSON
 Non resident alien individual; Foreign corporation;
Foreign partnership; Foreign trust; Foreign estate; and
any other person that is not a US person.
 May be subject to Nonresident Alien tax withholding.
 Taxed differently than payments made to U.S. citizens or
resident aliens.
 U.S. withholding agents are required to generally withhold
30% from the gross payment to be made to foreign vendors for
U.S. sourced income unless the country of the foreign vendor
has a tax treaty with the U.S. that will allow for a reduced
withholding rate.
 May be subject to Nonresident Alien tax reporting.
RESIDENT OR NONRESIDENT
ALIEN (INDIVIDUALS ONLY)
 Taxed differently and therefore, determining ones tax
status prior to payment is essential to accurately
report the individual’s tax liability to be in compliance
with IRS tax laws.
 Nonresident Alien
 Individual who is not a U.S. citizen or a resident alien.
 Taxed under special laws – NRA withholding
 Resident Alien
 Individual who is not a citizen or national of the U.S.
 Meets the green card test or the substantial presence test for the
calendar year.
 Taxed the same as U.S. citizens
RESIDENT ALIEN
 Foreign person may be a resident alien by meeting
either the Green Card Test or the Substantial Presence
Test for the calendar year.
Green Card Test
Individual was a lawful permanent resident of the U.S. at
any time during the year.
Substantial Presence Test
Must be physically present in the US at least:
 31 days during the current calendar year
 183 days during the current year and the 2 preceding
years counting
 all the days of physical presence in the current year
 1/3 the number of days of presence in the first
preceding year
 1/6 the number of days in the second preceding year
TAX RESIDENCY
 BO-3420 Form - Foreign Status for Federal Tax Withholding
 Obtained from the Business Office website
 Must be completed and submitted to the Business Office to
determine tax residency.
 Completed by foreign individuals only.
 Completed prior to STC payment, preferably during time of
hiring/contract agreement with STC.
 Visa and immigration documentation must be provided.
TYPES OF PAYMENTS AND TAX
AND REPORTING REQUIREMENTS
 Goods/Products – Not subject to U.S. tax reporting or withholding.
 Personal Services (i.e. independent personal services,
honoraria)
 Services provided in the U.S. - subject to U.S. tax reporting and
withholding when applicable.
 Services provided outside the U.S. - considered foreign source
and not subject to U.S. tax reporting or withholding.
Note: Honoraria payments require eligibility. BO-9300 Honoraria
Eligibility Certification Form must be completed.
 Royalties (i.e. software)
 Software or information downloaded onto a U.S. server – U.S.
source income subject to U.S. tax reporting and withholding
when applicable.
 Software or information downloaded in a foreign country server foreign source income and not subject to U.S. tax reporting or
withholding.
TAX TREATIES
 The withholding tax rate may be eliminated or
reduced if the foreign vendor employee is a
resident in a country that has a tax treaty with
the U.S.
 Examples: Mexico, Canada, United Kingdom
 Depends on types of services provided, the number of
days in this country, the amount of payment, other
criteria, sometimes change.
 Foreign vendors must provide Form W-8BEN-E
(previously W-8BEN) to claim an exemption or a
reduced rate of withholding.
Update: effective January 1, 2015
 Tax Form W-8BEN was used previously for Foreign
Vendors.
 As of January 1, 2015, Tax Form W-8BEN will no
longer be accepted, we will need Tax Form
W-8BEN-E completed.
 The Form W-8BEN-E reflects changes made by the
Foreign Account Tax Compliance Act (FATCA).
Update: effective January 1, 2015
FOREIGN VENDOR PROCEDURES
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Prior to agreement/vendor payment – the department engaging the
foreign vendor reviews and makes copies of documentation to verify that
the vendor’s status allows for payment to be received.
Department notifies foreign vendor of tax withholding and reporting
implications.
Department contacts Purchasing and Business Office Tax departments
regarding these payments.
Proper forms (i.e. Form W-8BEN-E (previously W-8BEN)) and other
documentation is submitted to Purchasing department.
Purchasing will review documentation for completion and approval for
purchase. Copies of documentation must be provided to Business Office
Tax and Accounts Payable.
 FOREIGN INDIVIDUALS PAID THROUGH A/P PROCEDURE Purchasing and Business Office will review documentation for
completion and approval for entering into an agreement. Copies of
documentation must be provided to Business Office Accounts
Payable.
Business Office Tax will confirm tax withholding and/or reporting and
provide it to Business Office Accounts Payable. If further information is
needed the Business Office will inform Purchasing or the Department for
appropriate information to obtain from vendor.
The Business Office Accounts Payable will withhold taxes according to
tax residency status.
FOREIGN EMPLOYEES
 Foreign employees must fill out BO-3420 if they indicate
on their I-9 that they are “other aliens authorized to work
until mm/dd/yyyy”.
 HR will contact the Business Office Tax Department
regarding foreign employees.
 Form BO-3420 along with supporting documentation must
be submitted to the Business Office for tax determination.
If further information is needed the Business Office will
inform HR for appropriate information to obtain from
employee.
 The Business Office Tax Department will contact HR on
employee status.
 HR will tax employee according to tax residency status.
 The Business Office Tax Department provides HR and
Payroll with supporting NRA status.
FURTHER GUIDANCE
Further guidance may be obtained in the
Business Office website under Business
Office Procedures:
“Foreign Vendors or Foreign Individuals Paid
Through Accounts Payable Guidelines”
Thank you for
attending.